Coal Market to ‘Struggle’ on Supply Gains, Morgan Stanley Says

Coal prices are forecast to decline
this half as supply recovers from flooding in Australia, the
biggest exporter, and demand in China and Japan slows, Morgan
Stanley said.

“We’ve seen a normalization of supply both in the thermal
and coking coal markets out of Australia,” Peter Richardson,
Morgan Stanley’s chief metals strategist, said today at a panel
discussion in Brisbane. “Our view is that the two markets will
struggle in the first half of the year.”

Coal prices hit records last year after widespread flooding
in Queensland and New South Wales crimped output at mines and
disrupted train lines. Prices have dropped as supply returned to
normal and demand in Japan was slow to recover following last
year’s tsunami and earthquake, Richardson said. Demand growth in
China has slowed as steelmakers have been unable to pass on
increased production costs, he said.

Morgan Stanley forecasts coking coal, used to make steel,
to trade at an average spot price of $210 to $235 a metric ton
during 2012, and thermal coal in a range of $110 to $120 a ton.

Coking coal prices reached a record $330 a ton last year.
Thermal coal prices at the Australian port of Newcastle slipped
12 percent to $111.35 in 2011, the biggest annual drop since
2005 and the first since 2011, IHS McCloskey data show.

The outlook for the coal market may have become “slightly
pessimistic” in the short term, said Bill Champion, Rio Tinto
Group (RIO)’s managing director for its Australian coal unit.

“In the long-term, the China and India demand growth story
remains intact,” he said.